Cisco Q3 report card: Lots of A's and B's

Cisco on Tuesday posted a solid third quarter, with revenues and earnings slightly better than Wall Street expectations. But the company was challenged in some product and geographical areas, and Cisco also felt the impact of softness in the US and European enterprise markets.

Cisco remains cautiously optimistic, tempering its guidance for the current fourth fiscal quarter to 9 per cent to 10 per cent revenue growth, down from its long-term target of 12 per cent to 17 per cent.

As for the short-term, we grade Cisco on its third quarter performance:

Overall quarter: A-

Revenue of US$9.8 billion was up 10 per cent from last year's third quarter, and above the mid-point of Cisco guidance, in an economy teetering on recession. Earnings beat estimates and were up 12% for the year ago period.

Enterprise: B

Product orders globally rose 9 per cent. In the United States, orders, excluding federal government, were only up in the mid-single digits because of the cautious environment on the overall economy. Federal orders were up 20 per cent. Cisco expects spending in the United States to pick up by year-end. Emerging markets, up to now a significant growth engine for Cisco, decreased by mid-teens figures.

"Lackluster US order growth (down from 12 per cent last quarter) reflected a sharp decline in US service provider orders and weak US enterprise orders (down from 11 per cent last quarter)," states Oppenheimer & Co analyst Ittai Kidron in a report on Cisco's quarter. "It is clear that challenges in the macro environment are affecting Cisco."

Service provider: C

Orders grew only 6 per cent. In the United States, they declined by 3 per cent after 12 quarters in a row of over 20 per cent growth. A bright spot -- high-end router revenue grew 25 per cent, led by the CRS-1, which grew 150 per cent.

Commercial: A

The market segment with the highest growth in orders, at 18 per cent. This business unit targets small-to-midsize enterprises.

Consumer: B+

The next highest order growth, at 13 per cent, for the business unit that includes the Linksys wireless product line.

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